Triple threat – the biggest three risks that are shaping the asset management industry

Stacey Mullin Outhwaite, COO, EMEA, BlackRock discusses the three biggest forces driving change in the fund management operations industry

Fund Operator Editor POSTED ON 12/24/2019 8:14:47 AM

There are many forces driving change in our industry, but I will focus on three: regulation, return and fee pressure, and political and social change.

The role of regulation

MiFID II heralds an important shift in market structure and investor protection in Europe. Competition is about giving clients better choices on products and services – and doing it the right way requires transparency, simplified reporting and robust governance arrangements.

The regulatory changes are opening new opportunities for the future, because regulation that enhances transparency is better for investors and will ultimately enhance investor confidence in products and the capital markets.

Similarly, the Senior Managers Certification Regime (SMCR) provides clearer accountability and discipline around our organisations – which as a Chief Operations Officer (COO) really speaks to my natural desire for order, and documentation – and ultimately ensures that incentives are aligned and all the better for increasing client confidence.

"Getting competition right requires transparency, simplified reporting and robust governance arrangements"

And then we have the topic of conduct: which gets at the heart of the risks and issues that have caused problems in the past – are our people doing the right thing? Do we have a strong culture?

And with reporting rules like the Gender Pay Gap, we’re pushing deeper and deeper into the culture of organisations and driving change in the way people fundamentally think about diversity.

And this is all for the good: more diverse and inclusive businesses yield better results.

With all this positive change though, comes a parallel type of pressure on our operating models: these regulations have to be implemented, and reported on, and some of these, like transaction reporting, are pretty complex, with an extremely low margin for error.

So, again, in parallel with the force for positive change and evolution, there’s also a force for increased efficiency as well.

Lower returns for longer

The second force is the likelihood that investor returns will be lower for longer.

Over the past decade (nearly), conditions have been beautiful for asset managers and our end clients: rates have been down and equity markets have been up. Clients have been making a good return with limited risk.

"Conditions have been beautiful for asset managers"

And now rates are up, and what we’re seeing, and what we feel we’ll continue to see in the future, is increased volatility. No longer is there a massive tailwind raising asset managers’ and asset owners.

Social and political change

This can be right in our face, like Brexit, or it can be much subtler: more social activism that emphasises corporate governance; climate change and social forces that have awakened strong demand for Environmental, Social and Governance (ESG) orientated products; or trade wars and populism that may put pressure on, for example, delegation which can impact our operating models.

In all this, there are echoes of the backlash of the Global Financial Crisis where there has been little trust, not just in financial institutions, but in many types of institutions.

This article is taken from the research report Fund Technology, Data and Operations, Europe 2019. To download the full report click here.

This is part one in a series. To read part two, which focuses on how these forces are heralding a shift towards multi-asset investing – click here.

This is part one in a series. To read part two, which focuses on how these forces are heralding a shift towards multi-asset investing – click here.


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